What you need to know about Hong Kong's retail sales comeback

Tourists retail spending soared 44.2% in April.

According to DBS, retail sales values and volumesin April surprised on the upside, growing 20.7% YoY and 19.4% respectively, versus 9.8% YoY and 10.2% in March. Sales have clearly made a comeback since bottoming-out in 3Q12. Year-to-date, retail sales values are up 15.5%, much higher than 7.6% in 4Q12.

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The surprise came as slower growth in China did not make a lasting dent in tourist spending in Hong Kong. Growth in tourists’retail spending (using a proxy derived from populartouristitems) hasleaped to 44.2% in April versus 6.2% in March.

Such a strong rebound isinteresting because the growth of April’s mainland tourist arrivalsrebounded to just 17.5%, versus 13.8% in March. We also saw thatthe growth in the sales ofjewellery, watches and valuable gifts were up 68.4% in April versus 11.2% in March.

In theory, the mainland’s frugality campaign should negatively impact Hong Kong’s luxury retail market. But for now, the numbers tell a different story. It is possible that spending has shifted from more conspicuous items to more low-key items.

Regardless, the numbers show that tourists are still willing to spend.

Meanwhile, locals’spending rose 10.0% in April versus 11.5% in March. The strong labor market hitherto will lend supportto the retailscene. Besides, an orderly correction in the property marketis not expected to create significant negative wealth effects. Keeping these in mind, moderate retailsales growth is expected in the next few months.